Sunday, February 3, 2013

Those farcical “bail–in” bonds.

I mean prior to the recent crisis a bond holder was always regarded as someone who was next in line for a hit after shareholders have been wiped out. Indeed, the small print issued along with bonds normally says as much.

But come the crisis, bank bond holders were spared, partially because they had political connections. And partially because ruining bond holders would, so it was thought, have meant the contagion spreading.

So what’s the remedy for this problem advocated by the powers that be and the great and the good? Well it’s to have special “bail-in” bonds, a condition of which is that bond holders take a hit when shareholders have been wiped out.

But hang on. That ALWAYS WAS a condition attached to bonds. So what’s new? Absolutely nothing!!!!!

Come the next crisis, “bail-in” bond holders will exploit their political connections for all they’re worth. And politicians will cave in to those bond holders demands for fear that the contagion spreads. Hey- this sounds familiar!!!

So what’s the point of “bail-in” bonds? Well their purpose is to keep quangocrats, bureaucrats, and members of the elite employed. Put another way, we’ve had a crisis, so something must be seen to be done. So hoards of paper pushers assemble and produce volumes of verbal diarrhea and waffle. That the latter waffle (certainly the waffle associated with “bail-in” bonds) will have no effect will not greatly bother the aforesaid members of the elite. They get well paid for sitting on important committees, so they’re happy.

The self-deception, the non contact with reality and obfuscation by the powers that be is (and probably always has been) a wonder to behold. Put another way, its not just dictators who, as is widely appreciated, come to believe their own propaganda. It’s also those in power in democracies who fall for the latter type of self-deception.